The 10 Commandments of a Home Loan

Taking a home loan can be a herculean task if not approached cautiously. There are several factors that need to be kept in mind when going for home loan. Here we have tried to cover 10 such commandments which will ensure a hassle free loan experience for you.

Loan Eligibility

It depends mainly on your monthly income minus the monthly expenses. Other factors like spouse’s income is also considered.

Maximum amount that can be borrowed

Normally the lenders require you to pay 10-20% of the property cost as down payment. Rest all, around 80-90% can be financed by the lender. Even though the lender calculates a higher eligible amount, it is not necessary to borrow that amount. Even a lesser amount can be borrowed. One should try to arrange the maximum of down payment amount and less of home loan so that the interest cost is kept at minimal.

Necessary documents

In addition to all the legal documents related to the purchase of the house, the bank will also ask you to submit your identity and residence proofs, latest salary slip (authenticated by the employer and self-attested by you) and Form 16 or income-tax return (for businessmen/self-employed) and the last 6 months bank statements/balance sheet, as applicable.

Loan sanctioning

Based on the documentary proof, the bank decides whether or not the loan can be sanctioned or provided to you. The quantum of the loan that can be sanctioned depends on this. The bank will give you a sanction letter stating the loan amount, tenure and the interest rate, among other terms of the home loan. The stated terms will be valid till the date mentioned in that letter.

Interest rate options

In the former, your interest rate may fluctuate citing market activities. While in the latter, the interest rate remains fixed.

Costs involved in taking a home loan

Apart from the EMI there are several other costs that you have to bear in a home loan. There is a processing fee that needs to be paid, which is around 0.5%-1% normally. In some cases the processing fee is waived off to make the loan deal more lucrative.

For some high-value properties, two valuations are done, and the lower of the two is considered for loan sanctioning. The lenders call it technical evaluation fee. Most lenders engage firms to scrutinise borrowers’ legal documents. Generally, banks include this cost in the processing fee, but some public sector (PSU) lenders tend to charge it separately.

Making repayments to lenders

Generally, the lenders offer various modes for loan repayment. One may issue standing instructions to the banker to pay the instalments through ECS (Electronic Clearing System), opt for direct deduction of monthly instalments by your employer or issue post-dated cheques from your salary account.

Pre-closure of loan

You can choose to close your loan prior to the original tenure. If your interest rate is a floating one then you won’t have to pay any charges but if it’s a fixed one they you might have to pay some charges for the same.

Part-prepayment of home loan

You can pay some amount other than your EMI towards loan fulfillment. This will lower your outstanding principal and also you interest will get calculated on the reduced principal. This will also lessen the burden on you considerably. The more the prepayment amount and tenure the more you will be able to save.

Taking insurance to cover loan liability

You may either buy a pure term insurance plan or a mortgage insurance plan for an amount equal to the loan amount for a specific tenure. One is allowed to pay a single premium or regular premiums to buy any such plans.

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